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OFAC Enforcement Action: UniControl, Inc pays $216,464

21 non-egregious, voluntarily self-reported apparent violations of the Iranian Transactions and Sanctions Regulations makes the base penalty $343,595 (total good shipped twice that – $687,189). In 2 of these, the firm and its management had actual knowledge that its goods were going to be shipped by a European trade partner to an end user in Iran. In the other 19 cases, there were warning signs, according to OFAC:

• Customer Interest in Iranian Market. Early in their relationship, one of UniControl’s European trade partners told UniControl in May 2010 that it had a significant market for UniControl’s goods in Iran and inquired whether UniControl could serve as a supplier. Although UniControl initially rebuffed the opportunity, UniControl never took steps in the subsequent years of the business relationship to ensure that sales to its European trade partner were not being reexported to Iran.
• Inclusion of Iran in Authorized Sales Territory. UniControl and a European trade partner entered into a February 14, 2014 Sales Representative Agreement (SRA) that explicitly listed Iran as a country to which the European company could re-sell UniControl goods. UniControl never sought to update or amend the SRA to make clear to its European trade partner that reexports of its goods to Iran were impermissible.
• Obfuscated End-User Request. When a European trade partner informed UniControl of internal company issues and holidays prompting necessary delays to UniControl shipping its switches to the European trade partner for onward shipment to end-users, UniControl offered on May 31, 2016 to ship its goods directly to a purported third-party European end-user in an effort to overcome the European trade partner’s substantial delays and ensure the end-user did not source their goods elsewhere. The European trade partner rebuffed this offer, citing problems with documentation and transportation issues. UniControl did not question or follow up on this obfuscation nor otherwise try to engage directly with the ostensible end-user of its goods.
• Engagement with Iranian Nationals at European Trade Shows. UniControl management and employees attended European trade conferences in 2012, 2013, 2016, and 2017 at which they assisted visitors at UniControl’s distributors’ booths to understand UniControl products. In this context, UniControl managers met with Iranian nationals in March 2016 at a European trade partner’s booth, but did not question its European trade partner about the Iranian interest in UniControl products. UniControl also met one-on-one with an Iranian end-user and a European trade partner at the March 2017 trade conference.
• Request to Remove “Made in USA” Label. UniControl’s European trade partner requested in a February 23, 2017 email that UniControl remove its “Made in USA” label from the switches slated for exportation to the European trade partner. The European trade partner explained that the Iranian end-user may have problems with the stated origin of the products. The request raised questions within UniControl—and prompted the company to seek follow-up guidance from outside counsel in March 2017—but UniControl nonetheless sent two subsequent shipments to the European trade partner for reexport to Iran.
Note that the last one of these corresponded to the 2 cases where the firm had actual knowledge.

Before I go on to the math, I notice that the standard of care is being raised in a few of these cases. Certainly, the trade show encounters, the request to remove the Made in USA label, and the inclusion of Iran in the sales agreement are obvious things that the firm should have taken note of. And, when combined with those elements, the other two seem reasonable to ascribe less-than-clean motivations to. But, on their own? The trade partner who didn’t want UniControl to contact the end user directly? Could legitimately be to protect its relationship rather than have UniControl deal directly.

And the interest from the Iranian market in 2010, before the EU had real sanctions imposed on Iran? At best, meh. Also note that the interest from the Iranian market was over 3 years before any of the apparent violations occurred. The idea that the firm should be aware of the increased level of sanctions and remember that a statement that was “rebutted” was made over 3 years earlier seems, at best, a stretch.

OK… commentary over.

General Factors affecting UniControl’s settlement

OFAC determined the following to be aggravating factors:
(1) With respect to the initial 19 shipments, UniControl failed to follow up on multiple warning
signs that its European trade partner was reexporting its goods to Iran.
(2) With respect to the initial 19 shipments, UniControl senior leadership was aware or should have been aware of the reexportation of its goods to Iran.
(3) With respect to its two final shipments, UniControl exported its air pressure switches from the United States to two European companies with actual knowledge that these goods were to be reexported to an end-user located in Iran.
(4) When exporting the final two shipments, UniControl’s senior leadership, including its President, Quality Assurance Supervisor, and Sales Engineer, had actual knowledge that the company’s goods were to be reexported to an Iranian end-user.
OFAC found the following to be mitigating factors:
(1) UniControl is a modest-sized company with no prior sanctions history with OFAC, including no receipt of a penalty notice or Finding of Violation in the five years preceding the earliest date of the apparent violations.
(2) UniControl ceased all shipments to its European trade partners at the time of its disclosure. With regard to the final two shipments that UniControl had actual knowledge were intended for reexport to Iran, UniControl requested that both trade partners return the goods to UniControl. One European trade partner complied, and UniControl reimbursed that company its payment. The other trade partner rebuffed UniControl’s request and reexported the switches to Iran. UniControl asserted that it forfeited approximately $66,900 in payment for those switches that were reexported rather than accept funds involving an Iranian end customer.
(3) UniControl cooperated with OFAC during the course of its investigation by submitting detailed and well-documented correspondence describing the apparent violations, as well as entered into two tolling agreements with OFAC.
(4) UniControl invested in and strengthened its trade compliance procedures, including by:
• Hiring outside counsel to assist in strengthening its sanctions compliance and export policies and procedures;
• Requiring customers sign end-user and end-use certificates to ensure that buyers do not resell UniControl products to prohibited end-users;
• Where UniControl customers are reexporting UniControl products, UniControl is now requiring end-user certificates from secondary and tertiary buyers of reexported products; and
• Adding a Destination Control Statement to the footer of certain trade documents, including: internal sales orders, accounting forms, customer-order acknowledgements, and customer invoices, to remind recipients of the restrictions on reselling, transferring, manipulating or otherwise disposing of their products.

The Lesson to Learn

This enforcement action highlights the importance of identifying and assessing multiple warning signs that indicate a foreign trade partner may be re-exporting goods to a sanctioned jurisdiction. In this case, the multiple indicia of sanctions risks should have prompted a commensurate compliance response. In particular, U.S. businesses should seek transparency when dealing with foreign trade partners and follow up on activities that raise concerns or suspicion. For example, should a foreign trade partner indicate an interest in reexporting goods to a sanctioned jurisdiction, a U.S. business should actively communicate with the partner about relevant trade restrictions, review relevant trade documents, and conduct other risk-based due diligence to ensure that the trade partner understands the relevant prohibitions and does not engage in violative activity.
Link:

OFAC Enforcement Information

Categories: Civil Monetary Penalties Enforcement Actions Iranian Sanctions OFAC Updates

eric9to5

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